Italian President Begins Talks On New Coalition

Italy's president launched urgent talks that could lead to the naming of a prime minister on Tuesday after two months of post-election stalemate that has weighed on a stagnant economy and alarmed Rome's partners in the euro zone.

* Prime minister-designate expected quickly, perhaps within the day

* Napolitano orders parties to stop bickering and cooperate

* Former premier Giuliano Amato seen in pole position

Italy's president launched urgent talks that could lead to the naming of a prime minister on Tuesday after two months of post-election stalemate that has weighed on a stagnant economy and alarmed Rome's partners in the euro zone.

After an angry and emotional blast on Monday at the very parliament that handed him an unprecedented - and unwanted - second term as head of state at the weekend, 87-year-old Giorgio Napolitano began a rapid round of consultations on Tuesday.

No party leaders were invited to the meetings with the Senate and house leaders of all the parliamentary groups, which Napolitano wants to wrap up within the day, suggesting that a government could be in place by the weekend.

Hopes that a government can be formed quickly gave a further boost to financial markets on Tuesday, with the yield on 10-year Italian government bonds dropping below 4 percent and the spread, or risk premium over German bonds, narrowing further.

Having threatened to resign if the parties continue with what he called their "irresponsibility" after the inconclusive parliamentary election of Feb. 24 and 25, Napolitano seems determined to force the pace, and could even designate a prime minister to form a grand coalition government within the day.

One leading name is Giuliano Amato, a veteran from the centre-left, who has been prime minister twice but no longer sits in parliament.

There has also been speculation that Matteo Renzi, the 38-year-old mayor of Florence, who is seen as a likely future leader of the centre-left Democratic Party (PD), could be asked to head a government. He arrived in Rome on Tuesday.

Whoever is named is likely to forge a multi-party cabinet to take over from the technocrat government of outgoing Prime Minister Mario Monti, who was appointed in late 2011.

Though there is scant appetite among the leaders for a new election, any new administration might struggle for stability or the parliamentary backing needed for economic and political reforms seen as vital to revive Italy's competitiveness.

The centre-left narrowly won a majority in the lower house but failed to win control of the Senate, and its inability since February to cut a deal with either Silvio Berlusconi's centre-right or the shock new third force of Beppe Grillo's anti-establishment 5-Star Movement has left the country in limbo.

PRESIDENT'S FRANKNESS

The otherwise largely ceremonial presidency plays a key role in the process of forming coalitions, and the coincidence of Napolitano reaching the end of his seven-year term while that deadlock was unresolved led to a series of failed attempts by parliament to elect a new head of state last week.

In the process, the PD fractured, and its leader, Pier Luigi Bersani, resigned, adding to the complex landscape Napolitano must now navigate.

The near-implosion of the PD could add to the difficulties in forming a government as sections of the party have refused to contemplate joining forces with their historic enemy Berlusconi.

Berlusconi in turn has insisted he would only accept a coalition government led by politicians who would give it a share of power with the PD, ruling out a repeat of the kind of technocrat government led by Monti.

The scandal-mired media tycoon Berlusconi was obliged to step down as prime minister in 2011 in favour of Monti amid fears of financial meltdown. But he and his People of Freedom (PDL) have emerged strengthened by the turmoil in the PD.

The PDL is expected to be part of the coalition, but 5-Star, which won a quarter of the vote and speaks for millions of Italians disillusioned with an entire political class, says it will sit in opposition in parliament.

It will be joined by the leftist Left Ecology Freedom party, the former partner of the PD, which said it would also refuse to take part in a grand coalition government.

The instability of the political landscape was underlined by the results of the first local election to be held since the national vote, which saw the centre-left candidate take a narrow win in the northern region of Friuli Venezia Giulia.

Grillo's 5-Star Movement saw its score drop to less than 14 percent, around half the total it won in the national election in February.